Cyprus pins hopes on new government for resolving tax issues

Seeking to promptly sort out tax-related issues with India, Cyprus today said it expects to closely co-operate with the Narendra Modi-led government to resolve the matter, which has created "immense obstacles" for investment activities between the two sides.

Cyprus, which has described India's move last November to put investments from the island nation under tax lens as "unilateral", is looking forward to a fresh round of talks with the new government on the matter.

Emphasising that corrective action to rescind the notification should be taken promptly, a Cyprus Foreign Ministry spokesperson said, "We do expect that the issue will be resolved out in close co-operation with the new government."

"There are no grounds whatsoever to maintain the notification of Cyprus, which has created immense obstacles and uncertainty in relation to investments and business exchanges for both our countries, and undeniably has cast a shadow over the historically excellent state of our bilateral relations," the spokesperson told PTI.

The comments come at a time when Narendra Modi is set to take charge as the Prime Minister after the BJP gained single majority by bagging 282 seats in the 16th Lok Sabha elections.

Last November, the Finance Ministry had announced classifying Cyprus as a notified jurisdictional area since the island nation has not been providing information requested by tax authorities under exchange of information provisions of the double taxation avoidance pact.

With the notification, all payments made to Cyprus would attract 30 per cent withholding tax and Indian entities receiving money from there will be required to disclose the source of funds. The transactions may also be covered by transfer pricing regulations.

The move was a part of efforts to curb possible tax evasion by entities through Cyprus, which is one of the largest sources of Foreign Direct Investment (FDI) into India.

According to Cyprus, an agreement has been reached on "nearly all the provisions of a revised Double Taxation Avoidance Agreement (DTAA)" with India.

"The Cypriot side has extended an invitation to the Indian side to have another round of consultations in Cyprus, aimed at finalising the revised text and ensuring that the revised treaty will be in line with international standards and mutually beneficial.

"We do hope that once the new government takes over in New Delhi, the date for a new round of consultations will be set," the spokesperson added.

India and Cyprus had entered into an agreement for avoidance of double taxation of income and prevention of fiscal evasion which is in force since December 1994.